South Africa packaging group Sappi to acquire Canadian paper mill for US$175m

SOUTH AFRICA – Sappi Limited, a South Africa based paper packaging group, has entered into an agreement to acquire the Matane high yield hardwood pulp mill in Quebec, Canada from Rayonier Advanced Materials for US$175 million. 

The transaction will proceed through its Canadian subsidiary Sappi Canada Enterprises Inc, which it said represents an opportunity to increase its pulp integration for both its North American and European packaging businesses. 

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The increased pulp integration is expected to lower Sappi’s costs of pulp, reduce the volatility of earnings throughout the pulp cycle and provide certainty of supply. The mill has a capacity of 270,000 tons per annum of high yield hardwood pulp.

Sappi said that the transaction is expected to be concluded in the fourth calendar quarter of 2019, subject to certain customary conditions precedent, including the pre-requisite approvals of certain anti-trust authorities. 

The acquisition will be financed through internal resources and be concluded by the end of the year, the company said in a statement.

“The acquisition will increase Sappi’s pulp integration for both its North American and European packaging businesses and lower Sappi’s costs of pulp, reduce its volatility of earnings throughout the pulp cycle and provide certainty of supply,” Sappi said.

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The company’s net debt at the end of June was US$1.728 billion compared to US$1.603 billion the year before. Sappi hopes that such an acquisition will bring down costs and lift margins.

The transaction will also reduce the cost of pulp for the company and is part of a pivot to areas with prospects for higher margins.

The global producer of dissolving wood pulp reported weak earnings as sluggish graphic paper demand and dissolving wood pulp prices weakened significantly in the quarter to end June. 

The group’s profits nosedived 84% to US$8 million (R115.99), down US$51m compared to last year, due to the lower operating profit and a US$9 million once-off finance costs charge to the income statement for the refinancing of the 2022 bonds.

Sappi chief executive Steve Binnie said although their third quarter was traditionally lower due to northern hemisphere summer holidays, the results for the quarter were under pressure, reports IOL Business

“We faced challenging market conditions across all our major product categories, but in particular from sluggish graphic paper demand in Europe and North America,” he said

Steve noted that this had necessitated production downtime and weak dissolving wood pulp (DWP) prices due to soft viscose staple fibre (VSF) markets.

“In addition, annual maintenance shuts which impact production and sales volumes were completed at Ngodwana, Saiccor and Cloquet mills,” Binnie said. 

In the light of a difficult quarter, Binnie said the group continued to focus on executing its strategy to diversify its product portfolio into higher margin segments to position them for future growth. 

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